Stock Market Now Hostage To Passive Capital Flows | Mike Green

Summary

• Passive Investing: The dominant market driver is the passive flow “factor,” creating mean-expansion dynamics that disproportionately benefit mega-caps like AAPL and sustaining indices until a policy or employment shock.
• AI Sector: High probability of downward repricing as capex explodes and profits lag, with dot-com/telecom overbuild parallels and likely migration to ad-supported models threatening margins.
• Key Companies: MSFT’s AI dependency via OpenAI/Azure and NVDA’s hyperscale demand were scrutinized; AAPL benefits from outsized passive flows; ORCL’s AI pivot drew skepticism due to funding needs; PLTR highlighted as a hyped AI beneficiary with stretched metrics.
• Private Markets Risk: Private equity and private credit face opaque marks, falling distributions, and potential contagion via credit spread widening and covenant disputes, raising bailout/intervention questions.
• Commodities vs Flows: Broad commodities lack “land” in passive portfolios, limiting durable bids absent true shortages or speculative hoarding; the structure favors equities over commodities.
• Precious Metals: Constructive longer-term view on gold/silver and miners, noting recent overextension, tactical hedging, and the dollar’s path as key drivers; potential policy easing could be a tailwind.
• International Value: GMO’s outlook favors value (especially international) over U.S. growth on a multi-year basis, though passive flows can delay mean reversion and sustain U.S. concentration.
• Macro & Policy: Fed constrained by inflation but likely to intervene in stress; employment trends crucial to passive contributions, and credit market “cockroach” sightings could tighten conditions abruptly.

Transcript

There is actually a passive factor that we've been able to isolate and it appears to be the single most important factor that's exists in the market today. You know, my passive factor would suggest that about 1,200 basis points of the return that we've experienced out of passive equities over the la out of equities over the last decade can be tied to that passive factor. I I I can't possibly know all the permutations of how this will ultimately play out, but it does really seem that a lot of this is going to continue until either valuations get so extreme to the top side that we basically start to sell simply because we've accumulated so many assets that we all decide that we can live fantastically rich forever. Um or we change policy in one form or another, right? Um it's the same phenomenon unfortunately that played out with the XIV. It's going to keep going up until a volatile enough event occurs to break it. [Music] Welcome to Thoughtful Money. I'm its founder and your host, Adam Tagert. When you're uncertain, they say to seek the counsel of those smarter than you. Well, amongst the many experts I interview on this channel, Mike Green is definitely in the top cohort intellectual horsepower-wise. Mike's portfolio manager and chief strategist at Simplify Asset Management, which holds over 6 billion in client assets. And today, we'll tap his latest thinking on the stock market, the credit market, the economy, and whatever else 2026 holds for investors that he thinks important. Mike, thanks so much for joining us today. >> Uh, it's a pleasure to be here. Thank you for having me back, Adam. I do have to point out actually we're almost 12 billion in assets now, actually. >> All right. Uh, well, look, I'm just going to update the intro there. Um, I must have been taking it out is one of your bios, so you got to update your bio. >> Um, that's very impressive though. All right. Over 12 billion in assets. Um, all right. Uh, so, um, lots to talk about. Um, it's been a while since you've been on. I am going to ask you about the giant mindless robot, but I'll try to be novel and not start with that. Um, you've recently written at length about your concerns about private equity. Um, in addition to that, you know, we've been starting to see cockroach companies causing trouble in the private credit space as well. So, I guess let's start here. How concerned are you about these more opaque but very fast growing private markets? Well, I think the the obvious component about the private markets is simply that because they have not had to mark to a public market level. Um, they've been able to conceal the deterioration in returns that's happening within the private space. There's been an unbelievable flood of capital that has come into private equity and private credit. Private equity in particular has um been unable to obtain the types of liquidity events that allow them to return capital to investors. At the same time, they continue to claim extraordinary performance in the marking, you know, the pricing that they're putting on their uh security positions, >> right? Sort of a just just trust me, bro kind of pricing. >> Yeah. I I mean, I don't know if I'd add the bro. I think that that uh degrades the degree of uh seriousness which they try to present these marks. Um you know but they they very much have an issue where at the core of private equity is a levered operating company. Those levered operating companies are dealing broadly with an economic slowdown. Very few of the private equity investments are in the rapidly growing AI or data center type spaces. Although they are looking to particularly in private credit lend to those areas which of course opens up its own um area of concern. If we look at publicly traded equities that are levered similarly to private uh equity assets with a similar industrial mix bias towards older economy etc. Those have been down a cumulative 6% over the last 5 years. Private equity claims that its holdings are up 116% over that time period. There is no amount of leverage that you can apply to get from minus6 to plus 115. So it suggests to me that the collateral that underpins much of private equity, the actual value of the assets is well below where it is suggested to be. Unfortunately, that's matched by declining distributions, meaning that they have not been able to return cash as their valuations have supposedly increased. That suggests that the simplest conclusion is they're just not accurate or they're lying about the performance. Most Americans shouldn't care about this until it makes its way into either the labor market because of the failure of many private equity entities. We actually just saw a home renovation business that was shut down instantaneously going for a chapter 7 liquidation. People lose their jobs when that happens. And those bonds were marked at par just a month ago. today they're being written off entirely. Um, it also suggests that much of the private credit space, which has by and large been the source of lending into the private equity space, has assets that are worth far less than they think they are. Um, or at least that they are indicating that they are. I I don't want to overly alarm people, but these are the sorts of things that we saw developing in the housing market, in particular, the housing finance market in 2007 and in 2008. Um, you know, private assets and public assets are ultimately the same thing. It's just held by different parties. And the law of one price says that it's not possible for the performance to be as different as they are. And that just suggests to me, as I've indicated in many other areas, that there's less value there than people think. And you add leverage to less value, it becomes very concerning. U but for most investors, they don't have a ton of exposure to private equity. So why does it matter all that much? I'm not entirely sure that it does to most Americans until they're forced to invest their 401ks into private assets, which is still not yet happened. >> Sorry to interrupt. hasn't happened but a lot of pensions have increased their holdings of private equity so that will matter to those folks right >> yeah I mean I think you got to be very careful right remember at the end of the day 3/arters of the private pension space the defined benefit space is now federal and public uh state and local employees I I I hate to be so crass but they'll just get bailed out right the taxpayer will pay for it that's really the game that's being played >> okay but I And I think that's something that the average taxpayer may still want to know about. >> Oh, they absolutely should know about it. I'm just saying in terms of your individual wealth, my guess is not much of the audience has huge allocations to private credit or private equity at least yet. >> Yeah. Well, okay. So, you could say, "All right, this is kind of a rich person's problem, but how about you, I know you said you weren't trying to be alarmist, but you said this is not dissimilar to what was going on in the um the subprime loans up to 2008." Um, could this, you know, Jamie Diamond said cockroaches, right? If you see one, you see more. I if if indeed the collateral just isn't anywhere near what is thought to be right now and that starts getting discovered, is there potential for sort of a cascading effect like we had in in 2028 where, you know, lenders just get more and more nervous about what's going on and they constrain lending and you've got, you know, all of a sudden nobody's willing to lend to one another and you get kind of a credit contagion like we had in 2008. I I think there is some I think there are critical risks associated primarily with credit spread widening and a tightening of financial conditions associated with uncertainty as to the value of these assets. Remember that you discover cockroaches when you turn the light on in the kitchen when you walk into it. Um if you see one cockroach part of the issue is you start looking for them right and that's really what's happening in the banking system right now is that both the bank the banking system and many limited partners in private credit funds etc are suddenly demanding a higher level of due diligence and it's when that happens that you discover that there are frauds or that there's improper collateral or that covenants aren't as strong as you thought they were etc. Um, and as those periods of distress rise, you start to see an increase in what's called creditor oncredititor violence, meaning people basically start fighting over the pieces that are left over to try to secure their claims. Um, in that type of framework, you know, you start seeing less club deals, you start seeing less coordination, which means there is less absolute financing that's available. And that can have an economic effect. It also has a high propensity in this type of environment to uncover yet more frauds. The lights on in the kitchen. We're looking behind the sink and we're looking behind the oven, etc. to see where the cockroaches might actually be. Whereas before we were kind of just blyly unaware. >> Okay. So, uh, just to bring this down to press tax, um, in terms of you losing sleep over this, if um, one is a perfectly perfect night slumber, 10 is you're not sleeping a wank, where are you right now? >> Uh, I I rarely don't sleep. So, I don't sleep great, but you know, all of these things are ultimately market mechanisms. The real challenge becomes, do we allow the market to actually clear in these results? And my hunch is unfortunately that that we'll likely see various forms of intervention to prevent the change of control features spreading broadly in a cascading environment. The offset to that is is that we don't necessarily have a coherent government philosophy at this point in terms of what are we supposed to do about bailouts, right? We've heard everything ranging from AI asking for pre-bailouts and guarantees of debt, >> right? We have absolutely no idea how the Trump administration is going to respond. And that for me is ultimately the much more concerning component. >> Okay. And um in terms of the mechanisms of the bailout for private credit at least because it's not coming from the banking system, would that have to come from the administration side or would the Fed get involved? Uh my hunch is is that the first stop would be the Fed, although the Fed itself likely sees itself as relatively constrained by inflation at this point. I think that's one of the things that is um kept the response from being more aggressive. If it shows up in employment, if it shows up in market correction in any way, shape, or form, it's just really hard to imagine the Feds standing by and not moving relatively aggressively. Okay, >> I want to get I want to get worried about this because I think it's actually a really big deal. >> Yeah. >> But at the same time, we're just in an environment in which it feels like the next step will be some form of a bailout, some form of credit guarantees, something to prevent the change of control, which is really the unique feature to credit instruments. They have embedded in them a change of control feature that says you didn't do a good job of managing this, now it's mine. Right? And um you discover how perfected your claims are in this process. You discover uh what the actual cost of capital is for you know restoring some semblance of sanity to a capital structure. But it's really hard to do in an environment in which the government is incentivized to continually step in. >> And uh you know you're you're right. We have been in a bailout first ask questions later environment for a good long while right now. Um, I'm curious, uh, do you see the new administration as being any more, uh, more or less sympathetic to that? And, and you mentioned, you know, AI, open AI kind of float in the trial balloon for kind of pre-bailout guarantee. And who knows what would happen in the real world, but, you know, um, who was it? Was it Bent who was pretty quick? No, it was U. David Saxs, the AISAR, who is pretty quick to publicly respond, hey, we're not going to do any bailouts in the AI space. There's plenty of other companies there that can step in if one if one stumbles. Um, so they're talking a little bit more of letting the free market reign. But is that just words, you think? >> Ultimately, I think it's just words, right? Um, look, AI has managed to get itself bound up in national security issues. It's managed to create a narrative that says the worst possible outcome is China wins in the AI race. >> Yeah. >> The difference between the two approaches between China and the United States. The quantity of data centers are 10x in the United States relative to China. It looks like China is somewhat rationally saying if there's a race here, it's ultimately going to be won on the basis of efficiency and incremental or significant breakthroughs on this process. we don't see the benefit of running as fast as the Americans are. Um, you know, that may change at some point in the future, but that seems to unfortunately be, you know, where China is on this. In the United States, we've convinced ourselves that this is the mana, right? That this is the future and that we need to invest as aggressively as we possibly can. >> Um, with very little prospect of immediate returns to it, right? I think many of us I I personally am experiencing an incredible degradation in OpenAI's performance. It's becoming increasingly unuseful for me. Exactly to David Sach's point, there's lots of other AI tools, LLM tools that have risen to take some of that capability and substitute so that I'm not totally starved. But, you know, it's very hard for me to imagine a continuing relationship with open AI as it exists today. And that in turn then raises big questions about what does this whole space look like in the face of somebody with the type of capacity that a open AI had if they fail right suddenly tons of Microsoft Azure is open for utilization which would damage Microsoft right this pattern flows through on a continuous basis. I I think it's a lot easier to say we're going to be focused on free market solutions than it is to actually follow through on that when the reality presents itself. Right. George Bush famously said, I you know, I had to to break the system to save the system. Right. Right. Um I I it it strikes me as as very hard to imagine a Trump administration allowing a significant downgrade to GDP or employment because this spending suddenly dries up >> or the stock market which you know continues to be this administration's favorite uh scorecard. >> Correct. >> Um okay so let's let's fully step into the AI space now then. Um, so maybe I'm just going to the punch line here, but um, how likely is it do you think that there will be a material um, downward repricing of AI equities? Um because just as we've had with with all other kind of scrambles to build out new transformative infrastructure, we overbuild. We get all, you know, ramp hyped up on on what the new potential is. But then as we really begin to see how things are going, we realize, okay, this very well may create the the wealth we think it's going to or the prosperity we think it's going to, but it's probably going to be on a on a longer timeline than what we got all excited about. Um, just like we had with the dot bust, for example. Um, how how inevitable, if if at all, do you think that is here? >> Well, I I think it's it's a pretty high probability, right? um the similarities between what is happening in the uh LLM buildout and the data center buildout and what transpired in the dotcom cycle are extraordinarily high right and so people will try to point to the dotcom cycle and say oh well it was all about unprofitable companies no Microsoft and Cisco were extraordinarily profitable companies yes the companies that were building out the infrastructure were unprofitable as they were building it out many of the ISPs were marginally profitable but they had the ability to access tons of capital under the promise that there was going to be extraordinary revenue growth in the space. Ironically, what ended up happening was because of the increase in capacity and because of the innovative attempts to re to improve the infrastructure that was already in place in particular what was called wave division multipplexing and then amplification technologies along along the fiber itself. We discovered that we didn't actually increase revenues. decreased revenues by about 50% in the telecom space even as capacity exploded about a thousandx right >> it's very hard to imagine a world in which we have an infinitely productive you know uh AI you know personal AI that we have access to and somehow or another we can't figure out how to do it more productively than we could be you know before we had those tools that just strikes me as somewhat absurd right more and more people are focused on this there's greater and greater rewards in terms of the price umbrella that's created by the old technology for coming up with more efficient solutions to it. It just strikes me that ultimately this is going to end up very much like internet search where it's ultimately advertising supported and in exchange I get a much much much more powerful version of search that can help me do all sorts of things that search currently can't do. Search can allow me to get information. It can't allow me doesn't facilitate me compiling it, right? It doesn't facilitate analyzing that data. um or the agentic part of it too, taking action based on the data. the agentic part like okay you gave me an answer now go book me that flight now go right yeah >> yeah and and and I mean we've tried doing components of that right I mean things like Google flights are very very close to a centralized architecture for booking and and checking flights it's the first place I go to right would it be better if I was able to say to an LLM similar to how I say to my assistant I have to be in Houston at you know 300 p.m. on Tuesday, what's the most efficient routing given the rest of my schedule? Right? Um it's it's very hard to imagine that that's not going to be automated, but that is a very minor improvement relative to the type of improvement that can occur when it's easier for me to do my job better, right? it's easier for the LLM to become increasingly specialized in my area of domain expertise which in turn makes it you know the equivalent of moving from a firstear analyst to a thirdyear analyst to a senior PM right these are all things that I expect will happen as we move forward on this but at every step in this process it's going to be a you know a cyborg type component a blending of machine and man that will ultimately drive this and again I just it just strikes me is so painfully obviously deflationary in its underlying construction. >> Okay. Um can I ask you this? Um uh well actually sorry let me follow up on that last point you just made. So um I think you said painfully def deflationary. Um so another way to perhaps interpret that is is the pile of profits just might not be as large u coming out of all this as people are dreaming of right now. Um do do you think that statement is true at least in the near term? >> Yeah, I I I mean I think the really critical thing to understand is is that there is no pile of profits currently, right? There's a pile of extraordinary losses that are being propped up by investments into these firms. This is generating intense consumer surplus whether you know and that's measured by the amount of losses that are being generated by these companies. What fraction of that surplus is currently being shared with Nvidia for example or Broadcom is the part that is ultimately really up for debate on this. Will it ultimately will these productivity gains make these systems so much better that we absolutely can't survive without them? Right? We'd be willing to sacrifice water and food in order to gain access to these LLMs. I it just strikes me as that's a somewhat absurd conclusion. And so it's likely to move itself to the point that the vast majority of people just gravitate to the lowest possible cost option of accessing these types of tools, which is always going to be the advertising supported model. >> Yeah. They're free. Yeah. Free ad supported. >> Yeah. Um Okay. So, well then let's let's just pursue this to its which you think is the likeliest dat's pretty substantial repricing of these assets. just walk me through what that looks like in terms of its impact on these stocks, on the markets, on the economy as a lot of these companies probably then have to, you know, start downsizing and a lot of people feeding off the AI ecosystem have to downshift as well. >> Well, I and and a lot of people who have, you know, the folks who have money been enjoying this ride all of a sudden have a negative wealth effect, right? Yeah. >> Yeah. I mean, here here's the challenge, right? it ultimately has to translate into flows, cash flows, incomes, etc. And so, you know, to the extent that the problems that we're identifying ultimately mean that the revenues of Microsoft or the revenues of OpenAI or the revenues of um privately held X, etc., or Nvidia >> fail to materialize, right? The link between that and stock prices is ultimately a very tenuous one, right? And who ultimately decides that they're going to sell Nvidia in enough size that it's going to offset the contributions that are coming in through things like 401ks? Well, there's just not that much active holding of Nvidia anymore, right? On the margin, can it have a big impact? If everybody suddenly woke up tomorrow and said, "Gosh, I have to dump my Nvidia stock." Right? Obviously, that is a very big negative. It would cause prices to correct quite sharply. Those corrected prices would then almost instantaneously be assumed to be correct by the giant mindless robot of passive investing and it would receive capital but in reduced form. Right? And so where that stops is pretty hard to articulate. It really does boil down to do people see that experience? So they go through that sharp correction in which Nvidia falls as it did in 2022 and suddenly start deciding, oh, this S&P thing is not for me anymore or this total market fund is not for me, right? I'm out. It's just really hard to imagine that happening right now, Adam. So, I know it's hard to imagine that happening right now, but I guess my question for you, Mike, is could we go through this downward repricing um of the AI sector like the dot sector went through when that bubble finally reached zenith and and could that happen and yet the passive bid still be positive? >> I the unfortunate answer is yes, right? Right. I mean, there's a variety of ways that we're moving that continues to emphasize putting more and more money into equities. Um, one example is the Trump accounts, right? Effectively 529s from birth that extend through life, right? >> Yeah, I remember we were chatting about that a while ago. Yeah. >> You know, that is one tool to drive even more funds into a market that is shrinking in the number of targets. uh another mechanism would be to turn around and say that the government is going to start buying these assets, right? Another mechanism is that we, you know, extend the age of retirement. I actually would painfully point out that the 50-year mortgage can be best interpreted as a mechanism to get people to delay their retirements because they won't have paid off their mortgages when they hit 70 and therefore they probably won't be able to retire in the way that people historically have. Right? That means that the burden on Social Security and Medicare is less than you would otherwise think it would be, right? It's putting more burden back onto the private sector. I I I can't possibly know all the permutations of how this will ultimately play out, but it does really seem that a lot of this is going to continue until either valuations get so extreme to the top side that we basically start to sell simply because we've accumulated so many assets that we all decide that we can live fantastically rich forever. um or we change policy in one form or another, right? Um it's the same phenomenon unfortunately that played out with the XIV. It's going to keep going up until a volatile enough event occurs to break it. >> Okay, so this is this is not that dissimilar to, you know, uh both monetary and fiscal policy where you you keep getting away with what you can get away with until inflation rears its ugly head, right? So, you know, we had to change our policies finally when inflation really took off. Um, so I don't I don't see the current administration nor the previous one or the what's likely to be the next one to proactively change policy to avoid this. I think they'll probably continue to be more bailouty and interventionary, you know, for some of the reasons we've already talked about. Um, so it kind of does make just a powerful argument to just learn to love the passive robot just and just ride that sucker until you know until something breaks. >> Yeah. Unfortunately, I mean, that's the direction that it it looks like it goes. And again, there are things that can cause it to break and there are components to it. If valuations get high enough, as I've emphasized repeatedly, withdrawals are always a function of asset values, >> right? If unemployment gets large enough, right? >> If unemployment gets large enough, right, if we decide that we're going to change our policy, but literally everything that we're doing, I mean, even look at the arguments to incorporate alternative assets into 401ks and target date funds, right? What are they talking about doing? reducing the bond component of the portfolio, not necessarily reducing the equity component of the portfolio. >> Right? When you consider that venture and private equity are basically 1.6 six and somewhere in the neighborhood of two and a half beta instruments. Taking 20% of your 60/40 portfolio that was in bonds and putting it, you know, so going to a 60 2020 20 where your 20 is now sent into alternative assets, quote unquote private assets. That's a dramatic increase in equity exposure, right? I mean, it's just a giant increase in equity exposure if you beta adjust those types of exposures >> because you're adding private equity now to public. you're adding private equity to public instead of replacing p public equity with private equity, right? So the details on how these are incorporated and how we choose to change our portfolios are going to have a huge impact on the performance that we should expect to see. But you know, I would just argue that that one of the areas that I'm increasingly focused on is isolating effectively the passive factor, right? So you think about the size factor or the value factor or quality factor, etc. there is actually a passive factor that we've been able to isolate and it appears to be the single most important factor that's exists in the market today. >> Okay. And what is that factor telling you Claire sailing? >> Well, what it says right now is is that a stock like Apple appears to have about a 20% endogenous return associated with the flow of assets from passive and that's accelerating because of Apple's weight in the index. It's getting larger and larger fractions of larger and larger flows as a proportion of the total flow component. It's just very very hard to fight against that. >> And is that I don't think that's unique to Apple, right? I'm I'm guessing that's shared by everything that benefits from current passive flows. >> Yeah, I mean this is part of where the research is increasingly focuses the idea on isolating that passive factor, determining it on each individual security. Versely that's actually easier than figuring out when the flows are going to change, right? So it's a question of can we optimize given the flows and the assumption that they're they're in there. Like there there appear to be ways to do this that you know I'm very actively exploring. >> Um I will be very candid like I don't like it, right? I think it's actually quite corrosive >> but the simple reality is I have a fiduciary obligation to my investors to explore every opportunity I have to make money for them. >> Sure. So where I was going with that question is is you said that the passive flow sorry the the passive factor for Apple was substantial material and increasing is it and I know it it's to different effects on different assets you know what their passive factor is but collectively for the market can we make the same statement that the passive factor for the overall market is substantial significant uh material and uh growing >> increasing Yes, unfortunately we can um you know as concentration grows there are some changes in terms of the impact that it has on particular stocks but this does appear to be driving this divergence that we've seen where the size factor has become very large. The size factor is a close fax simile but it's not exactly related to the passive factor. There's some wrinkles around that that that change it slightly. So it is independent but correlated. Um and and this does appear to be what's driving the markets, right? And it is substantial. If we go back a decade ago, all the forecasts that came from traditional forecasting methodologies would have told you negative expected returns to large cap US equities. You know, my passive factor would suggest that about 1,200 basis points of the return that we've experienced out of passive equities over the la out of equities over the last decade can be tied to that passive factor. >> Okay. So, I just issued like like an hour before we got on here, um, Mike, an interview I just recorded with one of the asset managers at GMO at Jeremy Grantham's firm. And they >> over the next seven years, uh, on a real return basis, they expect value stocks, particularly international value stocks, to do quite well. and they they're forecasting US growth stocks to probably perform the worst um in terms of their annual average real returns going forward. And I guess you would say for that to be right, something has to change with that passive factor. >> Yeah. I mean, I I would go back and point out that the exact same claim was made in 2016 by GMO, right? And the the core of what I would argue GMO is missing and it's somewhat ironic and I have to confess like I'm a Jeremy Granthm fanboy. I was a huge proponent of his type of analysis going into the dotcom cycle. Um what has happened is that you know he they are looking back at the history of returns and effectively saying that this is an aberrant period and the assumption is that the aberrant period will correct itself. >> Right. >> Right. Right? It's a mean reversion forecast. The work that I've done around passive and the component of passive in physics, you would think of it as a loading factor. Right? The natural state for water is to cool itself down to roughly room temperature. But if you put that water into a pot and you put it on a stove and you apply a forcing factor, a loading factor to it, we call heat, right? It will continue to heat until it hits a phase change and turns into water vapor. um there's no mean reversion, right? Because I've added an additional factor versus something that wasn't there before. >> And that's where I would argue that they have been mistaken in their forecasts. But somewhat unique about my articulation of things is that we have introduced a mechanism of investing that causes very predictable uh impacts at the single stock and index level. And those unfortunately have been very close to what's played out empirically over that time period. Most of my forecasts as you know were made in the 2016 to 2017 time period. And unfortunately it's really played out very much as as my data my analysis would have suggested. >> Okay. So yeah and look I I wasn't necessarily trying to engineer a debate between you and J. >> Yeah. I mean look I I will be very straightforward. I have tremendous respect for the way that they approach it. And actually, you know what? I'm going to share a slide here. Give me two seconds to share a slide. >> That that's fine. That's fine. I'm glad I actually asked it because I think your your analogy there with the the water and the stove, it's actually really instructive. So, I'll let you I'll let you pull up your your data here and then uh then I'll ask you one more leading question on this. >> So, you know, what was unique in the work that I did back in 2016 was I actually asked the question, why do markets behave the way that Jeremy Grantham has articulated? and why have they behaved this way in the past? And I was really surprised to discover that there weren't actually good models of how managers, active discretionary managers reacted to valuation. We knew that a Schiller PE exhibited mean reverting characteristics, but we didn't know why, right? And so my research, I went out and I surveyed investors and I asked them a fairly straightforward question. You're a portfolio manager. You have 5% cash in your portfolio. So cash is not an immediate constraint. You receive a 1% inflow or a redemption request. How do you respond in the presence of valuations? And so on the x-axis here we see a valuation. I specified it was a Schiller type valuation. And on the y- axis we have the marginal propensity. The marginal propensity to sell rises as valuations rise. The marginal propensity to buy falls as valuations rise. That's somewhat unsurprising, right? If you engage in discounting, if you understand a discounted cash flow model, a higher valuation, all else equal, lowers your forward returns, makes you more willing to sell, less willing to buy. The intersection of these two lines, which again is just a sample of 450 investors. They crossed it almost 50/50 at exactly the market's historical valuation average. And this makes sense if you then take those responses, feed them into an agentic model, right? Something we've talked about with LLMs and that you can do this yourself if you'd like to, and randomly fed them cash and took cash away. And what we discovered is that you'd get a mean reverting market from these behaviors. When you introduce passive vehicles, what you've actually done is introduce an entity with a 100% propensity to buy or sell. And so that changes the structure of the market as they grow in share. By the time you get to roughly where we are today at 50% passive, you've shifted away from that mean reverting market into what's called a mean expansionary market. As money flows into passive, they continue to buy. That creates the orange line as compared to the blue line. So instead of mean reversion, you get mean expansion. It's just a physical system into which we have done the equivalent of put it on a stove. >> Yeah. And so the stove heat, I'm going to probably murder your analogy, >> but um it it it it trumps it wins out over a whole host of other um previous factors. Oh, we might put some salt into the water and that changes its boiling temperature. Oh, we might throw a couple of ice cubes in there and we would normally expect it to get colder, but if this thing's sitting on the stove, it's still being driven higher to a boiling point over time. And and kind of where I'm going with this is what I'm kind of taking away from what you're saying, Mike, is like, you know, you if you find this confusing, you almost don't even have to understand it. It's almost like the people who were just like, I'm I'm gonna, you know, money printer go burr. Like just there's just a force out there that is the dominant one. And until that changes, almost nothing else matters. So just be along the the passive flows and and just ride it because if you're if you're waiting for a mean reversion, if you're waiting for some cycle that has manifested many times, you know, over the past hundred years, it very well may not manifest this time at least up until the point that the passive flow gets compromised in some way. >> Yeah, that that is unfortunately the conclusion that comes out of it and almost all the reaction functions, right? So let's imagine the Fed cuts interest rates and you know I want to be very very clear this actually lends itself to the type of brief crashes that we experienced in February March right of 2025. It also lends itself to exactly what we experienced afterwards. Once that selling is done it goes right back to the old system. And so if you remember the narrative that existed in February, March, just like the narrative that existed in 2022, 2022 is oh interest rates are higher now, you know, um growth companies should be trading at discounted valuations. Did I lose you? >> No. Okay. >> Um uh you know, now growth companies should be trading at discounted valuations because their potential is off into the future and when you discount that back at a higher interest rate, it lowers their value relative to the value stocks. Right? that lasted about two and a half minutes, right? The March narrative was, "Oh, American exceptionalism is over. Everybody's going to, you know, chase after Europe and and Europe has figured out fiscal stimulus. They're going to spend money on on um defense, etc." Right? Like it's those are narratives that last for a few weeks until you change the underlying systemic flows. And the systemic flows are increasingly allocated to assets in a target date fund type framework in which the US receives a larger and larger share of global flows. And within those glo within those flows, a higher and higher fraction is being received by the largest and most positively affected by passive flow stocks. It's a feedback loop that plays through. I I don't see what changes it other than knowing that it does end at some point. Okay. Um I almost want to like um Lego together kind of Brent Johnson's view of the world and your view of the world which is like more and more capital will continue to flow into the US for reasons you mentioned and those that follow Brent know all his reasons for that and then that money that's coming in is going into you know uh a more concentrated version of stocks uh that will you know keep powering things higher. So it's just sort of like just just watch the flows rest of the world to here here to the mag 7 mag 10 whatever. >> Yeah. And and as you go through this like I mean it is catastrophic ex economically right. I mean more and more capital flows into a smaller and smaller group of stocks and to a lesser extent bonds. Um you know that reduces the available capital that's there for small business and local um uh investment. Um, and it ultimately puts us into a situation in which on a personal basis and on a local community basis, we find ourselves increasingly impoverished, even as our metrics for household wealth grow to all-time highs. >> Nice. Yeah. And this this then goes to the whole K-shaped economy discussion having an awful lot. Um, or what I like to say, the lowercase I-shaped economy, I'm afraid we're hurtling towards. Um, and of course, you know, when this breaks, the knee-jerk reaction will be to try to preserve the system, as you were saying earlier, Mike, right? Bailouts, whatever it takes to just kind of keep this thing getting to get back to where it was. >> Um, all right. So, this is a little depressing. Um, so for you as a so a capital manager, so simplify 12 billion in assets under management. Again, congratulations on that. Um, how do you think about allocating in this environment? Um, do because one could argue, hey, it's it's just as simple as either own the indices or it's like just use your models which companies have the highest passive factor and let's just shove as much capital as we can into those. >> Yeah. Um, I mean the quick answer is if you have a factor that you've identified that is different from others, there are way and you are correct in your analysis. I want to emphasize that, right? Like it's entirely possible that I'm totally out to lunch on this. I don't think I am. And the evidence over the past decade has moved further and further in my favor. But you know that can be a little bit like pride goeth before a fall, right? So like I want to be very painfully clear on that. Um you know what we're going to find ourselves moving to increasingly is the exploitation phase where you've identified how a system works and you start the process of exploiting it. at least in the interim that turns into an accelerant which causes us to get even crazier right we experienced an element of this with retail flows in the past couple of months we're basically the nihilist philosophy took over and said you know okay well I you know it's obvious what's happening it's just the government's going to spend like mad and it's depreciation and therefore I'm going to go buy quantum computing stocks or nuclear power stocks or whatever right those are amplification mechanisms that can push individual areas of the market to extraordinarily high levels on a short-term basis give people the perception that they're making a ton of money. A really interesting analysis was actually done by gentleman on Substack looking at the embedded return inside Robin Hood accounts and you can capture this by looking at their filings in terms of what the contributions of AUM have been relative to the performance of the underlying markets. And the great irony, of course, is is that the the average Robin Hood investor, the the weighted average Robin Hood investor is actually losing money even in this environment, right? There's just an incredible amount of money that's being burnt in the system. Um, but yes, to the extent that you can identify that type of factor and move it into the exploitation phase, that is the objective. And you know, morally it feels disgusting. Um, from a fiduciary standpoint, it's my job. >> Okay. Um, so is sort of the the elevator sales pitch for Simplify now is we understand the passive factor better than anybody else, so give us your capital and we're going to exploit that. >> Well, that I would argue that that is certainly a component of it, right? The the some of the products that we run, for example, the high yield product that I run, you know, explicitly include this type of analysis. it has contributed to outperformance. Um, as a firm, our objective is not to exploit the passive factor, but an awareness of it helps us think through how to design products and how to take advantage of it. Um, you know, again, I reserve the right to be wrong in my analysis. That would mean that I would probably underperform as compared to outperform. >> Yeah. Okay. Um, all right. So, let's see where to where to bring this down. Um, uh, well, this is normally where I ask about your market outlook. Um, but I kind of feel like we've already kind of put on the table where you feel like, you know, it's going to go higher until, uh, there's some real big material change to these passive flows. Uh, obviously with some wiggles along the way. Um, and I normally ask about favorite assets, but I think your favorite assets are the ones that you guys privately calculate as having the best passive factor. >> Yeah, I I mean, I think that's right. And that is the area of focus that I have at this point is is you know figuring out the ways to exploit that. Um you know some of it feels almost tongue and cheek right like what you want to buy is what has been working. You want to identify why it's been working. It can't just be about the fundamentals and it can't just be about the passive component. You also have to understand like is there something here that's going to change? Is there market pricing that is at odds with what we think it should be given an awareness of these factors? Um, and I want to emphasize again like, you know, we're currently in an environment in which most systematic strategies, something we spend a lot of time on at a related company I I'm involved with called Tier One Alpha, you know, a lot of the systematic positioning strategies like CTAs are fully invested. the volatility control funds are much less invested, but if realized volatility begins to to ease off, um, we'll start to see flows come in there, right? But these are all kind of like that about those wrinkles. And so, you know, I'm just forced into the very uncomfortable position to say I don't see what's changing this in the short term unless we see a very rapid change in the employment picture. I know everyone points to employment as a lagging indicator, but when the flows are derived from employment, it actually becomes the leading indicator. It's part of the reason why we see stock markets not seem to forecast very forecastable macroeconomic events because it's all about flows. >> All right. Well, Mike, can can we make an agreement here that when and if you start seeing a material change to the flows that you think could impact the current trajectory that after you trade on it, after you let your clients know about it, you then give me a shout and you come on here and let let these viewers know about it? >> Uh, I I will absolutely commit to that. >> Okay. I very very much appreciate that. Um, all right. Well, look, uh, I want to get to one ending question just kind of on society because I know you, like me, Mike, you know, you separate your brain from what you think is likely to happen given the market and economy we have versus what you think should happen given, you know, an American who loves his country and his family uh, and his community. Um, because oftentimes they're not the same thing. Um, but real quick before I get there, I just want to ask you a question about something that you wrote recently. I didn't fully understand what you meant by it. Um, you said commodities are in a land war with Vanguard and they ain't got any. So, what exactly did you mean by that? >> Well, ultimately commodities need to in order for commodities to work as an investment thesis. One of two things has to occur. We either have to encounter such incredible shortage that the prices are driven high by industrial demand or we have to enter into an environment in which investors decide that commodities are undervalued and engage in various strategies to effectively hoard commodities. Right? I'm going to buy corn on a commodity exchange driving up the demand for it with no intention of actually using it. I'm hoarding it in financial form because I think the price is going to rise. i.e. speculation. The problem is is that most of the funds that are invested very very small sums of it are allocated to commodities. And so you can see a significant shift. But if I look at those that giant mindless robot that accounts for about 85% of retirement savings in the United States, things like target date funds, they don't have commodities in them as an asset. >> Right. >> Right. The fantastic period of commodities that we saw in the 2005 to roughly 2012 time period was largely tied to an academic paper that was written by Gary Gorton called facts and fantasies of commodity futures. It was written in 2005. It created effectively the blessing for commodities as an institutional asset class drove an unbelievable amount of capital into buying and hoarding commodities. And that's really what you're counting on when you talk about a bid for commodities is that it's that institutional or retail flow that suddenly decides, wow, uranium is where it's at. Forget this Nvidia stuff. There just aren't the institutional frameworks in terms of allocations that really allow that to happen. That's what I mean by commodities don't have any land in the portfolio. >> Okay. Um I'm going to make an analogy here. might be a bad one. But basically, if you're a commodity investor, it's like um uh how old was LeBron James? He like 35. >> I think he's 82, something like that. Yeah. >> Okay. I'm I'm going to guess he's 35. I could be way off. >> I think he's 40. He's got a kid who's playing in the NBA, right? >> Yeah. Yeah. Okay. So, 40. All right. So, so if you're a commodity investor, it's like akin uh to go into a a twoon- two basketball match where you're getting randomly paired with, you know, a 40-year-old in America, right? Um and uh versus somebody who wants to invest your way, Mike, uh who it's you and LeBron James, right? So, it's kind of like, you know, you could ask yourself the question, do I want to be do I want to be playing the game with some random 40-year-old I get matched with, or do I want LeBron on my team? And essentially, LeBron is the giant mindless robot, right? So, if if you're choosing not to to get the for to to have the 40, sorry, to have the giant mindless robot on your team, you know, it's the equivalent of just playing with some random dude versus LeBron. >> Yeah. And and I want to be clear, I suck at Ba at basketball, right? So, if you're pairing me and LeBron James, you still have a chance with a random 40-year-old. Um, but the odds are not in your favor, right? And >> they're and they're highly not in your favor because frankly, you could lie down and LeBron could kill the two of us. >> That that that is actually kind of what I'm encouraging, you know, people to do. It's like, look, you know, there's a fatalism and it may be a component of, you know, this is the last gasp of it. But it, you know, part of what has been a real breakthrough for me in the past couple of months as I've been working on this is actually the feedback loop that occurs within the stocks themselves inside the indices. And I just like I'm really really struggling to find what causes this to break until it is really really late in the game. And you know, so I I may not totally lay down, but I I I would suggest that LeBron's going to play at least the first two periods pretty much solo. >> Yeah. And I guess what I hear you saying um is you don't know when LeBron when when when he's going to tire out, right? But it wouldn't surprise you if we still had a quarter or more left in the game. >> Yeah, unfortunately. I mean, you know, again, the real question is going to boil down to do we have a meaningful enough economic slowdown to meaningfully impact the flows in a way that changes the character of them. And it's just it's just really hard to see. >> Yeah. So, you know what's interesting on this in a personal level is um you know, I've lived in I worked in Silicon Valley for many years. I then lived in Northern California for many more years. You know, I I know a lot of people I have a lot of friends who work and have worked for Google, Apple, you know, a number of these companies and they have just been wealth printing machines for these people. I mean, these people haven't I mean, some of them have been pretty high up, but but a number of them have been kind of middle management, whatever. And yet they've done just ferociously well um financially because they just have had this perpetual, you know, money printing machine of, oh yeah, I'm getting more options every year and those just only go up, right? And um you know, I don't I don't begrudge them their success, but I'd be lying if I didn't admit to some sort of envy and maybe a little bit of a sense of injustice. Like that's not the way it's supposed to work, right? You're not supposed to just get super rich purely because of the luck of who you decided to work with, right? Um, now, you know, there is free will and you got to be good to get accepted into these companies and stuff like that. So, I'm not saying it's totally random, but I just have seen personally the impact of the giant mindless robot on the people who work for these companies and how it has changed lives for them in a way that 99% of Americans, you know, have have have watched it by, you know, pass them by. They've been on the team that didn't have LeBron on it. >> Yeah. I I mean I I first I I understand both the um hesitancy to declare it as envy, right? Because nobody likes to admit to a sin. Um it is totally understandable, right? And we actually know this. I mean, this was written about by David Aur, I believe, in 2019. The mechanism behind it was identified by Jen at at Michigan State a couple of years ago in a in a paper about the passive impact on the largest companies. I think he misspecified why it's occurring but it doesn't matter. Um the simple reality is is this is largely unearned and while many of these people may be good the simple reality the analysis was done you know last year that if you had started as in at Nvidia as a middle market you know as as a middle manager marketer in 2023 making $70,000 a year you know your option package would have grown to $10 million today that'd be around $20 million right there is absolutely nothing that individual did to deserve that and it's understandable that the stress that that creates for you among other things the perception from that individual suddenly that they did deserve it right they have the genius to go to work for Nvidia when they were trying to find other jobs >> um it's incredibly costic to society it's not good right um it's the equivalent of having a lottery in which you know one member of your village wins every year but it turns out it's the same member right um that doesn't really bring people together in a meaningful way. And the worst part about it is in many ways the behavior from those who have won this game then turning around and saying well somehow or another I am more deserving than the rest of you. Um you know we know the mechanism we know why it's happening. We know it was a choice that we chose to invest in this way. It appeared rational given what we knew at the time. We know it's not rational today, but getting people to stop something that feels good is hard to do, right? I mean, that's what patent medicines were in the 19th century, right? It's very hard to get people off of opioids. We attempted prohibition, etc., right? These are all very, very hard things to do. They require hard choices. >> And most importantly, they require acknowledgement on both sides. >> Right? It requires us acknowledging that we shouldn't be envious of their wealth and their good fortune. And at the same time, it requires awareness on their part that they got fantastically lucky. And individuals like Warren Buffett continue to try and reinforce this. You know, his most recent Thanksgiving letter, his recent um resignation letter in which he highlighted, you know, be kind to those who are less fortunate than you. Our society almost feels like it's peeling in the opposite direction, right? the the the you know outcry of support for cutting off SNAP benefits >> um and food stamps is extraordinary. This is this is just silly. It really is. Well, and and personally, I think the the sense of injustice or unfairness um you know, drives people to react to that. And I think uh it probably was quite a large factor in the New York City mayorial election where, you know, a lot of younger people have just said, "Look, I I don't really care what you're telling me about the evils of socialism. All I know is the current system seems really unfair, so I'm going to try something different." Right? And um it's understandable. It's not necessarily desirable. Um but I mean sadly when I kind of project out what's going to happen society, I see more of that type of desperate decision-m going forward, not less uh until and unless you know this this system um reforms in some material way. >> Well, unfortunately, so this is what my latest Substack was largely about, right? It was called mispriced hope and it was identifying effectively that the American dream can be thought of as an option on advancement for citizens of New York City. They're increasingly looking at that option as unex exercisable. Right? The cost of living there is too high. The cost of obtaining the jobs that would allow them to advance in New York are too high. Um, and most of those who are very successful in New York have some form of attitude that says, "Well, if you try to take anything back or reduce my my income, I'm going to leave, right?" Well, at some point, you call the bluff. >> Yeah. Which I, you know, just did California in my my own life. >> You you you did it in California, but that was calling the bluff from the perspective of the successful individual who said, "I'm no longer subsidizing this." Right. We actually just saw the opposite where Ricky Sandler of Eminence Capital and I'm not picking on Ricky and I'm not, you know, blaming him for his choices, but you know, he had announced, well, I'm going to leave and I'm going to take my company with me if Mandami wins. Mandami wins. Well, I mean, I'll stay for now. >> Yeah, >> right. Um Okay. >> All right. Well, look, um I I hope I didn't bring too many people down in this discussion. Um, Mike, I'm >> It wasn't you. You were actually great. I was just, you know, my normal, really depressing self with a touch of nihilism thrown in for added measure this time. >> Well, you know, Mike, I mean, I I know you enough to know where your heart is, and I and I I believe, and you correct me if this is an incorrect belief, but I believe that you think in the long run, you know, things will will equilibrate, but who knows how long the long run could be. I mean, it could be till we're old men or gone. >> Yeah. I mean, unfortunately, I think it is likely that I will be an old man before this is gone. But I am incredibly hopeful about humanity. I'm incredibly hopeful about the younger generation. I think they've seen many of the mistakes that we've made. And candidly, I think things like Mandami who will ultimately probably prove incredibly ineffectual in New York >> are part of that same process that you go through as a young person, you know, in your teens and early 20s where you embrace forms of nihilism and say none of it matters and I'm just going to die. And I mean, we all have had to, at least I have had teenage sons, you know, where I go into their bedroom at night and they can't fall asleep because, oh my god, I'm going to die in 70 years, so what's the point, you know, etc. The reality is is that this is an incredible gift to be able to live on this planet and to be able to experience life as we know it. And >> especially in the west. Yeah, >> especially in the west. Although I moved back to the east coast because I happen to like the intensity and humidity and snow and everything else. Right. >> I'm in western society, but but sure. No, no, I understand what you mean. But um you know like I I actually do think that we will solve this and things will be better. But this is an interesting inflection point and I think that we have unfortunately exhausted many of the tools that we've used and now we just need to watch the systems play out until we come up with a better one. >> Got it. And as those systems play out, I think you would say uh you know they're going to play out. So you you know use them to your personal purposes, meaning recruit LeBron for your team if you can uh at least for your fiduciary responsibilities and then maybe use your personal responsibilities to try to be a a part of the solution in terms of driving the reforms we'd like to see. Unfortunately, you just define the path that I try to follow and it it it falls into the category of you feel insane half the time and um you are deeply saddened by the choice choices that we're making as a society. But we've known since Adam Smith that you know price is the mechanism of information exchange in a market-based economy. It's how we are supposed to convey information. If we suspend the information content in pricing and we continue to apply the rules of capitalism, you're going to end up with an incredibly rapacious and extractive system. I don't think socialism is the right answer. I do think that more regulation around behaviors and antisocial behaviors in capitalism is ultimately going to be the answer, but we're not ready to embrace that yet. >> All right. Well, look, we we'll end it there. So your your parting, you know, sort of investing advice to people as I took away um Mike is hold your nose, recruit uh the LeBron James of the giant mindless robot onto your side while it's still working the way that it is. Um and uh you know, DIY investors can figure that out on their own as best as they can. Folks that would like to get a good financial quarterback to help them could go to simpl or could go to your your business and perhaps look at investing in some of your funds. So, if they wanted to do that, where should they go? >> Uh, you can go to www.simplify. us if you were interested in our funds. Um, if you're interested in my thoughts or writing, and I can't imagine why you would after this interview, but >> you can find me on X asp99 and I have a Substack called yes I give a fig.com uh that is available at a a very low cost. Um, I only charge for it because I want to make sure that people value it rather than simply occupying their email. If you do not want to pay, but you do want to read, I'm more than happy to extend subscriptions, just send me a message. >> Okay? And I will say as somebody who subscribes, uh, it is Mike is a great writer. Um, and if you really want to understand some of the concepts that he and I have talked about here in depth, he's got lots written on them, uh, at that site. Um, all right, Mike, as usual, >> just a fantastic uh intellectually challenging, you know, kind of depressing but practical and realistic discussion. So, thank you. >> Thank you. I appreciate it, Adam. >> All right. Well, now is the time on the program we bring in the lead partners from New Harbor Financial, one of the endorsed financial advisory firms by Thoughtful Money. I'm joined as usual by lead partners Mike Preston and John Lodra. Guys, great to see you. John, why don't we start with you because I think you've got a couple of uh of dots to connect with us both with Mike Green's analysis, but also with uh GMOs. I just interviewed uh John Thorndike of GMO on this channel right before this video. So, um why don't we start with your insights from that and then we'll just uh we'll talk about what the markets have been up to this week. Some interesting things going on, especially in the precious metal space. >> Yeah, great to be with you, Adam. And uh always enjoy Mike's uh Mike's comment. certainly uh intellectual intellectual and pragmatic about the realities of modern markets and we uh we listen to a lot of what he has to say and it's it's very relevant. Um you had related u the interview you just did with uh John Thornike I think it was from GMO and uh ironically enough I was at uh GMO's annual investment conference in Boston last week. It was a two-day conference. people from all over the world tune in virtually, but being that it's in our essentially our front yard, I went in and joined about a couple of hundred other people for a two-day pretty in-depth uh investment conference. Touched upon a wide range of things and um you know, kind of connecting the dots to the conversation you just had with with Mike. The very first session that uh the GMO team uh had in in the two-day conference was essentially I I'll paraphrase. It was a reconciliation of their heritage as value investors and meanreverting kind of uh theorists about markets and a an absolute acknowledgement even if a reluctant one on their part that passive flows absolutely are a factor that not only should be u monitored but actually tried tried to exploit. So they talked about for example they've done a lot of work um at looking at the fact that you know passive uh rebalancing on a quarterly or monthly basis uh absolutely has a a measurable um impact on on returns and that's something that they they're trying to exploit. So they went through a whole bunch of stuff. So I found it really interesting. You know, we we too, I'd say, are fanboys of Jeremy Grantham's long uh long heritage and firm's work, great work over market cycles for many decades. Uh, and I think uh, you know, I walked away from this conver conference with a signed uh, copy of Jeremy's forthcoming book called The Makings of a Perma Bear, I think is the title. And it it's a very apppropo because I think he he in in a nod in the title acknowledges that this this this cycle has been absolutely um extended beyond what the normal kind of traditional mean reverting cycles would would have and you know um we don't think that's invalidated and and um you know it's it's the almost the predictable result I guess you could say of you know trillions of dollars of of horsepower being and firepower being unleashed into markets over the last decade and a half that we're still even though the Fed just last week announced uh you know a curtailing of their quantitative tightening there are still many multiples of uh reserves and you know assets on the Fed's balance sheet than prior to the GFC. So this this is going to be with us a long time and these dynamics will be around for a real long time. Um I'll just give a quick comment about the um the talk you had with Mike about private markets. You know, we a long time ago here at New Harbor um you know, made a very conscious decision to um not only focus our strategy on tactical responses and proactive movements as relates to markets, but also to place a a very high premium on liquidity. What we have learned is, you know, clients that really need their money to live on, as much as they are concerned about good performance and making sure downside is not uh that that that dramatic, they really are concerned about being able to get their money when they want their money. And that's that's all well and good in private assets until you can't. And we're seeing that, you know, you and Mike talked at length about the um the the illquidity uh phase right now in private, you know, the these these both private equity and credit uh are not being able to kind of realize um values of of of their assets on the time frame that the their investors are demanding. And uh even worse, the the marktomarkets uh which are somewhat arbitrary, you know, um uh kind of appraisals uh are turning out in some cases to be dramatically away from where the market really is. And he made reference to the home remodeler. It's company called Renovo. And they went, you know, in a very short period of time from a basically a mark of 100 cents on the dollar par for their investments uh to essentially zero. And you know there's headlines like Black Rockck may you know uh I think Black Rockck was one of the you know firms that was highlighted might have to take a full ride off and it's obviously just one small piece in their portfolio but these are real real dramatic things and you know I want to share one graph because I think this speaks to you know how how pervasive these tentacles um uh go go in in in in markets. This is a chart that looks at um you know basically insurance companies exposure to private credit and you can see that uh you know first of all the the number of private rated securities held by insurers has has ballooned over the years and you can see um you know there are all kinds of different flavors of these but United States and can Canadian uh insurers uh have have a a a huge allocation to these. Um this is um you know I think just in the last couple weeks uh I think UBS's chairman basically said we're seeing kind of um credit rating shopping going on much like we saw during the housing crisis where you know credit agencies were being sought to basically tell uh issuers what they wanted to hear in terms of the credit rating of the the securities. you know, we we know all about the AAA tunches of mortgage debt that were basically just bunch of junk junk mortgages that didn't deserve AAA, and we're starting to see that in in private markets now. So, there there's a a whole lot there, a whole lot more cockroaches we think that uh could could likely come on the scene, and it will have spillover effects, no doubt, into public markets. Um, you know, so there's a couple big picture takeaways I want to comment and I'm sure we'll have plenty more to talk about there. >> Yeah. Well, it's super interesting to see those dots being connected. And so essentially GMO was saying, yeah, Mike Green's on to something here with this passive factor. Um, so you know, as Mike and I talked about, he's got concerns about the private markets. Um, but let me ask you this, John. So, um, you know, multiple things can be true at the same time. And uh you know it's palpable talking to Mike Green um that he you know he he doesn't like the current environment we're in that is so passive driven but he has to as a fiduciary he has to you know basically call the the the world as he sees it and and invest accordingly right and so you know he generally says look I I I think in until less And until something really compromises these passive flows, the bid for the market is going to be uh pushing it higher over time um because of these passive flows and in particular, you know, the the the big stocks that are the greatest beneficiaries of these passive flows. >> Um and it's sort of like almost everything else be damned, right? So, um, I'm curious for you guys as capital managers and especially if there are any key takeaways from the GMO conference on this is like what do you do with that? You know, if if it's like if the most important factor is passive flows, do do you just, you know, push everything all your other concerns aside and just ride this thing until you see obvious signs that it's it's getting compromised? Um, I guess that's question one. Question two is is that can be true. You can have the r continued rising tide of of passive um the passive bid, but you can have periods during that rise where the market actually falls pretty substantially because you have, you know, some big black swan or something that the market didn't expect. The market didn't really know what Trump was going to do with tariffs. It got surprised to the downside with liberation day. But as Mike said, you know, then you had a ferocious um uh you know, rally after that. We might have something similar with private credit, right? Where we might we might find, hey, you know, there's a lot more cockroaches here than we thought and that everybody gets spooked and the market could have a downdraft, but then maybe just to recover quickly again because the passive bid hasn't been fully compromised yet. So, you know, you guys have the challenge of being prudent capital managers where a lot of people are coming to you who are saying, you know, New Harbor guys, I'm I'm not comfortable with the dynamics in in the markets and I see a lot of weaknesses and I see a lot of things historically that would have suggested tougher times for the markets ahead. But with this ongoing positive bid, how do you It's just got to be really tough, I think. Yeah, it's it's challenging and and u look as m as much as we um it seems appealing to go out and try to pick individual stocks, you know, value stocks, quality stocks, you know, our our mo our methodology is largely it's almost entirely based upon um ETFs, um sector ETFs, geographic ETFs, you know, slicing the market but in index form through ETFs. Um and that's that's you know in a not so subtle way us acknowledging that um yeah these markets are very much driven by flows not you know company A versus company B and the earnings report they just put put out in in a durable way anyways um uh but but there's also quite a bit of um dispersion underneath the surface. Yes. So you can buy an S&P index fund and um just as it you know benefits by the passive flows in it also gets hit by the passive flows out. um you know, you know, if if certain constituents sell off, you know, so Mike acknowledged that the you know, Swift pullback in in February and March of earlier this year is absolutely the reverse of the mindless robot. And you know, 2022 was another example of that. So, so I think the the big takeaway there is that um you know, as as easy as that might seem on the surface to just set it and forget it, you're also likely to see these, you know, pretty dramatic swings from time to time that are enough in and of themselves to unnerve people and and get them out at the wrong time. So we we do think there's a middle ground here to embrace kind of the the passive flow but also be very tactical whether it's through sector rotation um you know kind of do you know hedging against these short-term um you know kind of moves uh down um and we see that the the the technical indicators that we follow are essentially different reads on flows um their momentum their their you know relative strength indicators um all in their in their heart you know driven by by flows It's not about valuations. It's about where the money is flowing at any given point in time. And and for example, um you know, we all this talk you just have with Mike, you know, I think most people take away, oh, it's just the S&P or just the MAG7. Well, one of the best performing areas in the stock market this year to date are foreign stocks, international stocks. Um, and I would say that most mindless robots are way underallocated to those. So, it's not the only show in town. uh and our relative strength signals have have led us in into having the the largest proportion of uh equi international equities that we've had as a percentage of our total in any time in the last uh you know few years and and these are the kinds of things where I think you can reconcile both those realities and still we think add value and and deliver you know good returns but also very very mindful about protecting these these passive downswells that are absolutely going to happen and and oftentimes with with little notice. >> Okay. And um presumably by um riding uh assets like international stock, international value, even to a certain extent US value, um they they're not trading at the crazy multiples that uh US growth stocks are. And so if and when there are these draw downs that you mentioned, um these other sectors should should not get hit as much, right? you know, they they've there's there's less froth to be taken out of them than there are obviously in some of these other areas. >> That that generally is a a very, you know, true statement to make that, you know, and the valuations of of most foreign markets are way way kinder than the US stock market in general. And that generally historically has been a cushion unto itself. Not to say there's no risk because when the US market has a downdraft, it usually has, you know, follow-through effects everywhere. Um but on a relative basis, yeah, starting with a better valuation is is historically been a a relatively safer place to be >> to be. All right. And folks, you know, to get a better understanding of kind of the opportunity that these international markets offer, uh, if you haven't watched it yet, watch that interview that I did with John Thorndikeke from GMO because he goes into this in a great deal of depth and and actually, you know, you get the, um, you get the the the benefits from the fundamentals of these companies. Um, you you you get the benefits of the um, you know, some of these these companies had really been kind of almost left for dead. So, you know, one of the reasons why they performed so well over the past year is they were at like, you know, throw the baby out with the bathwater prices at the start of this year. But also, um, you get an additional kind of potential, uh, option value in them if the dollar continues to devalue versus the home currencies of these countries. Um and uh you know no guarantee what the dollar is going to do going forward but at least from GMO over the next you know 5 10 years they expect the dollar to weaken on a relative basis to other currencies. So that's just another tailwind that they expect uh on these markets. And again you know there's a lot of factors going on here which is why I would say if you want to learn more about it go go start with that interview with John Thornike. >> One one other thing I want to add just just quickly on that this mindless robot. you know, we we just, you know, we talked about how private equity is a bit of a stuck mode right now. These big institutional investors that kind of pendulum swing way heavy into private equity, I would not be surprised to see uh, you know, kind of the pendulum swim back the other way, you know, where they start to say, "Hey, private equity hasn't really been all we thought it was going to be." And private credit, we're going to go back into public markets and and this is a body, you know, big endowments and pensions. um more or less they still have a very um you know um disciplined investment mandate. You know, they're not going to just plow into the S&P 500. They're going to So, I think there could very well be through that factor a you know, a more price sensitive buyer coming into markets that that in in some small way kind of offsets some of the the mindless robot. You know, these are all big big picture um tectonic shifts, but I would not be surprised to see that pendulum swing swing back in that direction. Well, I I I will hope you're right. Um, you know, I share some of the concerns that Mike mentioned of there's a real push now to make alternative investments more available uh to the re at least to the retail market. Um, and you know, the skeptics, uh, which I will include myself in at times, you know, thinks that this just might be sort of a a backdoor way to get these private funds to be able to dump a lot of their junk on the unsuspecting retail public. And you know, as Mike mentioned that one of the concerns about this is, you know, we're starting to hear uh a lot of kind of long-standing Wall Street brands recommend that people start thinking about moving some of the 40% and the traditional 60/40 stock bond portfolio into alternative assets. And I think that could be a really good thing for well-informed investors. Um, and I think you know you guys and I think that especially things like precious metals probably would it would benefit the average investor to have a little bit more exposure to them because right now the average investor essentially has zero uh exposure but um you know as Mike was saying it it's basically adding more equity to the overall equity exposure to the the the well the average investor both probably both retail and institutional by these these endeavors, these new endeavors. And that's a little bit nerve-wracking, right? Because it's all about risk return. And if you're if you're not swapping public equity with private equity, you're simply adding private equity to public equity, you really are increasing the overall risk exposure to the general portfolio. >> Yeah, Adam, we we could go on a whole separate topic on the u in invitation encouragement of retail to, you know, democratize assets to, you know, accounts to these assets. I did a video on that on our own channel, but you know, we're pretty skeptical. In fact, you know, we we get all kinds of product, you know, pitches through our doors. We we're very selective at who we listen to, but there's a whole cadre of of vehicles out there offering democratized assets to things like private equity and they're they're in things that, you know, for example, deal in secondaries, which is code for, hey, these big guys went out, they can't get out, but here's a vehicle where they can essentially get out by pawning it off on the small retail investor, right? So, buyer beware for sure in those areas. >> Yeah. All right. All right. Well, look, Mike, thanks for being Mike Preston, thanks for being uh patient here. We'll come over to you now. Feel free to add anything to what John and I have have just discussed here. I want to ask you about um precious metals in just a moment here, but um I guess on the you know, the topic either of uh the giant mind Well, let me let me ask you this. um on the the giant mindless robot. Um one of the things that could really impair these capital flows, these passive capital flows, um is a material reduction in the workforce, right? A huge part of the passive bid is the mandatory purchasing every month of retire, you know, the the the retirement account uh funds that corporate America manages, right? Um, and so if if there's less people working, those funds that get uh invested every month are going to start going down. And that's something that could really impact uh negatively the passive bit. You know, unemployment is still, as best we can tell, you know, without the the the latest data because of the government shutdown, but unemployment is still relatively low, but we are seeing, you know, more and more signs that uh companies are certainly not hiring. Um we're seeing some pretty large layoff announcements by a lot of companies uh these days. Um and uh uh you know more and more the world I think is beginning to kind of get the memo that AI could be a big jobs killer. So my my question here Mike is is there a chance in 2006 that we actually see enough shrinkage of the workforce that it could actually um make a material impact on the passive bid. >> I'm not really sure Adam to be honest because I don't think the unemployment rate changes that quickly. Yeah, I can imagine. I guess we'd have to look back at a chart to see how the unemployment rate changes over time. I know it's hooking up slightly here over the last >> Well, when it hooks up, it it historically when it hooks up, it does spike. >> Yeah. And and the SAM indicator triggered I think a year ago. It was one of the few times maybe the only time the SA indicator failed to predict a recession. But yeah, so it's been hooking up for a while. The question is how fast can it move? And if it does move faster, how impactful is it going to be? I I don't really know because I am not so sure that I 100% agree that that is the thesis that we're working with here. I I have to agree that the mindless robot, the passive flows has exacerbated this bubble more than than I think any of us thought possible. U we we've been public about that. GMO's been public about that. Uh managers like John Husman's been public about that. Yet, I believe that Mike Green was talking about a new regime. You know, basically a a an expansion, uh, a mean expansion versus a mean reversion. GMO thinks there's going to be a mean reversion. New Harbor thinks there's going to be a mean reversion. You know, uh, Mike Green doesn't think there will be. So, you got to have to pick your poison here. You asked a question about how to manage money when you got this giant mindless robot. Well, you got to do your best because we here at New Harbor are fiduciaries as well, right? Just like Mike Green. And so, we have to try to navigate that. How do we do it? Well, we put some governors in, frankly. You We've got 45% equity instead of 80 or 90. And we've got hedges around that 45%. What does that mean in a straightup bubble market? It means possible underperformance. We accept that. That's the decision I'm talking about. You make a decision. You pick a side and you make a decision to underperform if that happens. That's the price of being more agile and nimble. We have our options which are also good but not perfect. But we are definitely in the mean reversion camp. We've said many times that we think we're approaching the crisis point of this fourth turning cycle. It's followed by a climax. If you really buy into that whole theory, it's hard to imagine that we're going to go through a crisis/climax of fourth of a fourth turning probably in the next 5 years without a major collapse in the market. So I think that we are going to have that mean reversion and so everything we do has that in mind. To answer your question, do I think that unemployment could go up fast enough to trigger this? Yeah, I really have no idea. I don't I don't know. I think we're going to have to have some kind of catalyst. History has shown that other major market tops can top without major catalyst. 1929 didn't really have one, as far as we can tell from history. And maybe this one won't either. But for all I know, we're already in a recession. We could be. You know, the data has been pretty muddy and everything's kind of shades of gray now with constant intervention. One thing that Mike talked about is the bailout environment. Everyone expects it now and it will almost certainly be what the government does again at the first sign of trouble. And so therefore, it seems like we can float along with negative data longer than we ever could have in the past. So that's that's kind of my take on that. >> All right. I just want to share this real quick. um just to show what I was talking about historically. So here's a chart. Um red is the um the federal funds effective rate, right? This is the discount rate that the Fed sets. Um and then the blue is unemployment and the uh gray areas are recessions. And you'll see it almost every recession here on this chart. you had the unemployment rate um you know trending down uh after the the previous recession bottoms out starts heading upwards and then it spikes up into the next recession. Now of course these gray zones you know were uh not declared in real time. They were usually declared you know a year or so in a rears. But almost every time here before you know going into every recession you see that you have a stable uh unemployment rate that had bottom slightly started turning up and then bang shot up into the recessionary period. So you know something has to be different about this time for that not to happen because you can see we bottomed out here. um we're now, you know, it's beginning to pick back up. Um I should also note too that that those um those recessions not only were concurrent with a um a spike in the unemployment rate, but almost all of them happened after a period where interest rates had been hiked, held steady for a while, and then the Fed had just started started to cut. And that's sort of exactly what we're seeing here, too, right? Big hiking regime by the Fed. They held it steady. They they cut a little bit, held it steady for a while. Um, now they're starting to cut again. Um, so you got to have a really good explanation for why it's going to be different this time. Um, and there may be, you know, may maybe AI is changing the game. Maybe the giant mindless robots just going to keep everything going here. Who knows? Um, but, you know, there's a lot of things around the AI trade that are really looking long in the tooth uh, as well here. Um, and uh, you know, we're starting to see things. I just saw an article yesterday about uh Oracle where um uh Barclays just uh downgraded Oracle's debt to sell because it's saying look given what Oracle has has you remember when Oracle stock like a month ago or a couple weeks ago after their earnings call this massive big you know kind of relatively stodgy blue chip tech company added like 30 or 40% uh more market tell you within like half an hour after a earnings call because it basically said we're finally getting into the AI game. Um what Oracle has now said they're going to need to spend to be able to realize uh that potential future value. Barclays is looking at and they're saying like they're going to run out of funds before that. They just don't have enough money. They don't have the ability to raise enough money to to to actually spend all that. So, you know, you're starting to see uh, you know, I guess people beginning to to doubt that the AI trade is going to unfold as completely as as the market has been expecting so far, uh, in in in a near-term time frame. So, um, who knows what's going to happen with all that, but that again is something that could could puncture the euphoria of the market. We'll put it that way. Mike, you're nodding a lot as I'm saying this. >> Yeah, Mike talked a lot about that. There's been a lot of hype in AI and and and it's still unclear as to how impactful that's going to be in the real world. It is transformative. I use it. It's talked to a lot of people in in business that use it. It is a a wonderful thing. And I don't think that we understand exactly how that's going to matter to jobs, to stock prices, etc. Mike Green talked about um low margins, negative profits, massive capex, huge debt. you know, that's it's a recipe for disappointment if anything goes wrong. And over the last two weeks, a number of these names have been knocked down. So, this particularly the last week has been kind of like the anti- AI trade week, but it's still really early with so many of these so many of these names. I mean, Palunteer is up around I think 180. I remember a couple quarters ago we broke through 120 had massive price to sales and the metrics were just off the charts and then the stock almost doubled from there. You know now it's about 50% higher than than where it was and the market uh Palanteer struggling to make new highs here but it's a big name in the AI space that everyone mentions as one of the behemoths in the AI space. So, but there's so many other small speculative ones that are not turning a profit that really you're just taking a flyer on and probably not really worth it for most investors to concentrate in that area unless they're just absolutely, you know, spending most of their time researching it and um because there's a lot of hype there. Absolutely. There's a lot of hype there. >> Well, here here's a question and then John, I'll come back to you for the precious metals and we'll wind things up. But here's one thing I don't get about AI, which is personally I've mentioned many times in this program. I just don't see how AI is not going to be a massive jobs killer. Um, if it's anywhere near as impactful as as we currently think it may be. And given that, I I just wonder why don't we start with that as the assumption as a country, right? Hey, this thing is going to displace a ton of people. um let's figure out how to mitigate the impact of that rather than just displacing a whole bunch of people and then trying to figure out what to do. Right? So I don't understand why as a as a as a nation we're not saying AI has to prove to us that it's not going to be a jobs killer. Let's start with the the assumption, you know, kind of almost like a a guilty until proven innocent approach. um just because if if if I'm correct and we displace millions of people that we don't really know what they're going to go to next because we're not creating a lot of new jobs. In fact, we're we're getting rid of an increasing number of jobs. We could create a massive sort of social undermployment problem. Um, yeah. I mean, I I I just wonder why we as a society don't don't say, "Okay, look, if it could be that bad, and it looks like it could be, then let's find a an approach to go uh pursue this in a way that that hopefully, you know, doesn't do that or doesn't do that as as to the scale that it could if we're not paying attention. Why is our default? We're just not going to pay attention and we'll deal with a problem if and when it arrives." Do you have any thought on that, Mike? just that that's the way we always do things. I mean, we just show me an example where we have been proactive when it comes to an economic problem. We don't we wait for blowups to happen and then we patch them over. So, I don't really see that being the case. I don't I don't think there's any chance of that happening, but I'm with you. I think a lot of jobs are going to be lost. And I don't know if it's only going to be AI or whether it's going to be a collapse in the stock market that really pro starts it off and then it's worsened by AI. Um >> so I I worry about the job losses of a of a you know moderate or larger recession. But you know if if it was a garden variety recession where the economy would reabsorb those people you know after a period of time whatever that's just the business cycle. I'm much more worried about, you know, large scale job displacement where the jobs just don't come back because they've been automated. >> Yeah. And I and I really think that that's going to take I think we know from history that's going to take years if not decades to re retrain people. Some people close to retirement will just retire early. bottom line is it ends up I don't mean want to be negative but there's no way out of it that's not painful you know and if you tie that into where we are in the market cycle at these obscene never-before-seen valuations with the viewpoint that we will see a move towards the the average valuations again and that'll probably coincide with a crisis/climax of a fourth earning then unfortunately my answer is that there's just a lot of pain in all of that with very little chance out of it you know in terms of re in terms of avoid avoiding those jobs losses. >> All right. Well, there have been a lot of kind of heavy and kind of depressing conclusions on this particular interview so far. So, sorry to add one more to the fire there, folks. Um, in wrapping up, John, I'm going to come back to you real quick. I just want to comment on the run we're seeing today in the precious metals. So, um, gold here up uh almost 90 bucks an ounce so far, back o over $4,200 an ounce. Uh, I'm talking about gold futures, just FYI to be specific. Silver futures, even bigger day, up over 5%. Uh, silver back over 53. Silver futures back over $53 an ounce. Actually, almost 53.5 an ounce here. Um, so, you know, John, we we were cautioning people um over the past month that um look, the precious metals had run super far, super fast. you are likely to just get a technical pullback period. Um, irregardless of the fundamentals of what's going on. And as that pullback that we've had over the past couple weeks materialized, I think, you know, guys like you and I sort of have felt, yeah, pretty validated about that call. But then, of course, the question started arising, which is, okay, well, is is the rally over in the precious metals? And maybe are we was that the a blowoff top like we saw in 2020 2012 and uh and 1980 and uh you know after which prices cratered and then we're were kind of dead for long stretches of time. Um still TBD the script's unfolding here in real time but we're seeing the metals catch a pretty strong bid here over the past couple of days. Uh is the rally back on? >> Yeah. So let's let's talk about that. So uh we have talked in recent weeks how uh even we having been you know bullish on precious metals for for many years even even when they were you know seeming like they were dead in the water um we got a little concerned with how quickly they ascended and got overextended. Now I will say and I we'll look at a chart in a second but you know there a lot of this is sentiment driven and even though we we saw a perking up in our client base and prospective clients about hey let's add more to precious metals it pald in comparison to for example back in 2011 2012 where you know people were having at home you know gold parties bring your gold jewelry we'll pay you money for like it it didn't reach that kind of >> all the cash for gold ads that were >> Yeah. I mean, so so there's that, right? On a price action basis, we got really extended, but it didn't have the same kind of like everybody's in it kind of feel and and sentiment that we saw back in the last major peak in 1112, 2011, 2012. So So that's kind of healthy. In fact, much of the buying, you know, that we've seen in in recent years has been central bank buying really um convicted buyers, you know, as a legitimate reserve asset. uh not just a price, you know, price go higher kind of trade. Uh but let's let's look at uh some charts here. Uh this first one is a uh GLD. It's a gold ETF. None of this is recommendation of any securities or anything like that, but this is a daily chart of GLD. And we had this long kind of triangle period here back in uh in kind of the this the summer that broke out and we saw very fast ascension, you know, right up this what this is what's called an upper Ballinger band. This is two standard deviations above the 50-day moving average. And it can do that for a while, but when it starts to poke above some of these metrics and if we go out to a weekly, you know, we got way outside the weekly upper Ballinger band. Rarely in history has that ever happened. and we got way way outside. So it was very and there's a whole bunch of other technical indicators we look at you know exhaustion that and flows that you know we thought it very very highly likely we were going to see a pullback and we'll we'll I'll get into how we managed that in a minute. uh silver, same kind of thing. And you know, so what we've seen more recently is we, you know, took out this 21-day moving average and we kind of started to approach the 20 uh the 50-day moving average and we kind of had a I would say a healthy little pause here. And yes, we've been um sharply moving higher. Um too early to say if this is going to stick. You know, some ways some might just say we're closing some gaps here. And I would not be surprised to see this kind of consolidate for some weeks or months here. uh even if the longer term trend is higher, silver, same kind of thing, maybe just a little bit more uh you know extreme you know we had very sharp sell-off here approached the 50-day and here we are you know chasing very close to the the prior highs. This is SLV an ETF that has silver bullion. Now we do um I will say we we hold this in our client portfolios and again not a recommendation for viewers. This is not personalized investment advice, but we got really concerned with the same kind of blowoff here. And we we actually sold some call options against this. And you know, the call options originally were a strike price of of 41 on this ETF. Now, of course, this stock went way higher and we didn't chase it. We we felt pretty pretty confident as much as it sucked, you know, kind of leaving this upside on off the table, um we felt pretty confident it was going to pull back. And when that did, we punched those call options up a couple strikes. So, we we were able to kind of, you know, get a couple more, you know, a couple more dollars of upside. Um, but we right now we're we're in the money on the call options here in a covered call on SLV. So, if we do get a pullback here, that that pullback would be rather mooded in our in our accounts, just like this flare up. We're not participating in the full move higher today in silver. Our more substantial position in precious metals is and has been through the the gold miners. Uh, and this is GDX, an ETF that as proxy for that. Um, here again, we've got half of this position written with call options that are strike prices of 67. We did sell the other half at 85 and and book profits in those calls on this pullback. Um, so we we're kind of like, you know, we're still kind of hedged here. Uh, we we've essentially taken some chips off the table. And that's not really a statement about our longerterm conviction. It's more just a statement about the near-term price action got a little frothy for our liking. We've got many clients, many at our at our suggestion that hold precious metals outside of their investment accounts in vaults or or safe deposited box or whatever. And many of them have amassed very large positions and and uh we still are quite constructive longer term for a lot of reasons we'll talk about. But absolutely, we've been telling folks to to smartly sell into this strength. uh you never you should never hold out uh as as an objective to never sell uh below a top because you know life's about using your money, not just seeing it go to to new highs, right? So, we've been telling folks to, hey, sell some of those those metals you have. Go on that trip you've been talking about. Do the home improvements you've been putting off. This is what it's there for, right? Trading these, you know, um sound sources of money, if you will, into real life uses that can make your life better. um you know so uh big picture though you know why is you know we're seeing a dollar kind of starting to stall here at a recent um recent um kind of counter trend rally bullish counter trend rally we're starting to see that peter out we may be you know gunning for new lows in the dollar that plays out and that certainly has been a tailwind for uh precious metals historically and and more recently and um we're already starting to see this this uh riding in the wall of new stimulus you know the Fed stopped QT effective, you know, December December 1st of this year. Um, but already they can't help themselves by saying we may have to start adding assets to, you know, asset purchases again. So, the market, I think, is getting ahead of that. Um, there's some headlines about tariff rebates coming in the form of $2,000 stimulus checks to every household below, you know. So, so gold is basically saying, "Oh, yeah. You going to do that?" Well, guess what? That's going to invite all kinds of problems with inflation and and uh weakening dollar and and that's why you need to have precious metals and things like that. Sound money that uh can can be a referendum on those kind of uh extreme interventions. >> Okay, John, do me a favor. Pull the silver or gold chart up again here. >> Um so just just very technically here for a moment. Um >> from a technical analysis standpoint, um >> this is silver by the way. This is silver which is this is a great example. Okay. So let's assume for a moment here that that this is the top of this latest run and that silver um you know starts heading down again. Um from a technical perspective with this sort of lower high um then make you think that silver you know might might have tougher days ahead of it. >> Yeah. Anytime you can't take out a prior high it's one little vote in favor of hey maybe that's all we got here right. It's it's not in and of itself this magical indicator, but yeah, if we if we stall here and can't take out that high and uh you know, it just suggests that hey, the sellers are are looking to offload here and and yeah, that would in isolation be a small vote in favor of hey, maybe we're going to consolidate or go down from here and consolidate these recent gains. >> Okay. So, so how how about to the other side then? So by the same token, yeah, same token, if we take that out, that is in isolation a vote that hey, that that you know the saying is prior resistance becomes uh new support, right? If if we blow you blow through this prior top, that becomes technically new support. It's not quite that simple in life. uh the these part of the our our beef with technical analysis has been so >> uh pedestrianized if I could use that word that there's almost too many simple rules here that they they don't work out. Sometimes they become self-fulfilling pro prophecies but we look at a whole battery of stuff things like you know however extended are you know flows you know if this is if this is happening on on convicted volume that that means you know something different than if it's happening on very light volume for example and and things like that dollar trends you know a lot of confirming things that will help give strength to the signal one way or the other >> yeah it's always multiffactorial but um I wanted just to note it because in a week we should kind of know the answer to this question. Um so we'll revisit it then and see see what's going on. Then you can you can tell us then what the other factors are suggesting in addition to what that price action has told us. All right. Well, look gentlemen, um it's been yet another great update from you guys. Thanks so much for joining me after this. Huge thanks to Mike Green for coming on and doing his usual uh excellent analysis for us. Folks, if you'd like to have Mike Green come on, let's say perhaps early in 2026, to provide us an update on where things are from his outlook, um, please let us know that by hitting the like button and then clicking on the red subscribe button below, as well as that little bell icon right next to it. Um, if you would like to get some help in figuring out how to position your portfolio, either for the trends that Mike Green talked with us about or for some of the trends that the gentlemen here from New Harbor have talked with us about, um, well, look, I highly recommend you get that professional help from a good professional financial adviser. Importantly, one that takes into account the macro issues that we talk about on this channel. Um, if you've got a good one who's doing that for you, great. Stick with them. Don't mess with success. But if you don't, or if you just like a second opinion from a good one, um perhaps uh even John and Mike and the team there from New Harbor Financial, then you can fill out the short form over at thoughtfulmoney.com and schedule a consultation with one of the financial advisory firms that ThoughtfulMoney endorses. Now, it only takes you a couple seconds to fill out that form. Um these consultations are totally free. There's no commitment to work with these firms. It's just a service they offer to be as helpful as possible as they can be to people. Um, in closing here, Mike, I'll let you have the last words here. Um, I know we're beginning, you know, it's now mid November. We're beginning to or the end of the year is coming up fast. So, there's things like um tax lost harvesting and taking your required minimum distributions if you're uh above whatever it is, 70 and a half or whatever the the current age is. um and a few other endofear things that if you're going to do, you got to get them done in the next, you know, month, month and a half plus or not plus, but month and a half or less. Um beyond making sure that you you take care of that stuff. Any other bits of parting uh advice for the audience here, especially given what you're hearing from the folks that are, you know, reaching out and calling you guys on a daily basis? The top three or four topics are required minimum distributions, gifting uh both to charities or to family members, uh gain gain loss discussions about capturing uh losses potentially. Um th those are the big ones. Uh really it's really all about gain loss and about RMDs. Those are the two big ones. And so, you know, we're here to talk to people if they want to talk about that, particularly our clients. and and even if you're not a client and you got a question about that, let us know and we'll be happy to speak with you. Uh here we are just about halfway through November and there's a lot of rubbings about the Santa Claus rally. So don't be surprised if you hear a lot more about that in the media and that tends to be self-fulfilling. I don't think it can't happen just because it's so so obvious. Uh maybe we are in this phase of of a meltup here. We'll see. But um that there's going to be a lot of a lot of hub up about Santa Claus rally this year, year-end rally, particularly if we start to break above these most recent ranges. We're only a hair's breath off alltime highs. The Dow just made all-time highs yesterday. I think again today the S&P's maybe 1% or one or two% off alltime highs. So if we break through and start to run, we'll be watching to see if the market broadens out. And then of course there'll be all this talk about Santa Clara rally, but we'll actually start to be thinking more cautiously versus more bullishly at that time. So that's kind of what I think about when I think about year end. >> All right. Well, look, thanks so much, guys. Really appreciate it. Another great week. Look forward to uh being here with you guys a week from now and have you make sense of whatever happens between now and then. Um but very much appreciate it. John Mike, look forward to seeing you guys again soon. >> Thanks again, Adam. Great to see you. We'll see you next week. >> Thank you, Adam. and we'll see you soon. >> All right, and everybody else, thanks so much for watching.